PLAINVIEW, NY, February 9, 1999—Veeco Instruments Inc. (NASDAQ: VECO), today reported financial results for the fourth quarter and year ended December 31, 1998. Historical financial results have been restated to reflect the merger of Veeco and Digital Instruments, which was accounted for as a pooling of interests.

Fourth Quarter Review

Veeco's fourth quarter 1998 bookings increased 22%, to $62.0 million from $51.0 million in the 1997 fourth quarter. Veeco's fourth quarter 1998 sales were $51.5 million, an 11% decrease from $57.8 million in sales in the fourth quarter of 1997. The Company's book to bill ratio for the quarter was 1.2 to 1.0. Operating income in the 1998 fourth quarter was $6.6 million, compared with $7.9 million in the fourth quarter of 1997. Net income for the 1998 fourth quarter was $4.5 million compared with $6.2 million for the fourth quarter of 1997.

Diluted earnings per share for the fourth quarter of 1998 was $0.27 per share (pro forma fully taxed) compared to $0.33 per share (pro forma fully taxed) for the fourth quarter of 1997.

Year End Review

For the year ended December 31, 1998, Veeco's bookings were $221.4 million, a 1% increase from bookings of $218.6 million in 1997. In 1998, sales were $206.8 million, a 5% decrease compared with 1997 sales of $216.7 million. Veeco's book-to-bill ratio for the year was 1.07 to 1.0. Operating income, exclusive of non-recurring merger and reorganization expenses of $7.5 million, was $26.5 million in 1998 compared to $40.1 million in 1997, exclusive of non-recurring charges of $6.5 million. In 1998, operating income was impacted by lower gross profit in Process Equipment due to reduced sales volume of high margin etch products, as well as a shift in product mix to new deposition products with lower initial gross margins and increased product field support costs. Research and development expenses increased 12% in 1998 compared to 1997, as the Company continued to invest in the development of new products for its Metrology and Process Equipment segments. Net income for 1998 decreased to $12.7 million from $26.0 million in 1997.

Diluted earnings per share for 1998 was $1.08 (pro forma on a fully taxed basis, excluding non recurring merger and reorganization expenses of $7.5 million principally related to the merger with Digital Instruments), compared with $1.66 in 1997 (pro forma on a fully taxed basis, excluding non-recurring charges of $6.5 million).

During 1998, Veeco's Metrology and Process Equipment groups represented 61% and 29% of sales, respectively. Metrology sales grew 12% in 1998, due to greater use of 100% in-line inspection for data storage customers. Process Equipment's 1998 sales were down 28% compared with 1997, due primarily to over-capacity of etch products, while new deposition products experienced significant growth associated with the transition to magnetoresistive (MR) and giant magnetoresistive (GMR) thin film magnetic heads (TFMHs).

Edward H. Braun, Chairman, President and CEO of Veeco Instruments, commented, "1998 was a challenging year for Veeco, our industry peers and our data storage and semiconductor customers. Yet, our performance during the year was enhanced by our diversity of products and markets, which served to counteract an industry-wide cyclical downturn. During 1998, Veeco furthered our strategy to provide our customers with comprehensive Metrology and Process Equipment solutions for improved manufacturing yields and faster time to market for their next generation products. As part of this strategy, we completed a successful merger with Digital Instruments, a leading atomic force microscopy company. In addition, we saw significant growth in our Wyko optical profiler product line, which was acquired in 1997."

Mr. Braun continued, "Veeco's $62 million in fourth quarter orders, and the recent $14.4 million order for Process Equipment tools we received from Read-Rite, are indicative of the data storage industry's accelerated transition from MR to next-generation GMR TFMH production and the increased use of yield improving in-line metrology associated with smaller high density TFMHs."

On February 8, 1999, Veeco completed the public offering of 3.575 million shares of common stock at a price of $52.00 per share. Of the 3.575 million shares sold, 1.0 million were sold by the Company and 2.575 million by certain selling stockholders. The net proceeds from the offering to the Company of approximately $49 million will be used for capital expenditures, working capital and other general corporate purposes, including potential acquisitions. The Company did not receive any of the proceeds from the sale of shares by the selling stockholders. Regarding the offering, Mr. Braun commented, "We are pleased to have completed this recent public offering, which strengthens Veeco's balance sheet and provides additional capital for our future growth."

Veeco Instruments Inc., headquartered in Plainview, New York, is a worldwide leader in metrology tools for the data storage and semiconductor industries, and process equipment etch and deposition tools for the data storage industry. Manufacturing and engineering facilities are located in New York, California and Arizona. Global sales and service offices are located throughout the United States, Europe, Japan and Asia-Pacific.

To the extent that this news release discusses expectations about market conditions or about market acceptance and future sales of the Company's products, or otherwise makes statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These factors include the cyclical nature of the data storage and semiconductor industry, risks associated with the acceptance of new products by individual customers and by the marketplace, and other factors discussed in the Business Description and Management's Discussion and Analysis sections of the Company's Report on Form 10-K and Annual Report to Shareholders.

Veeco Instruments Inc.
Consolidated Results of Operations
(In thousands, except per share data)
 
(Unaudited)
                         Three Months Ended             Year Ended
                         December 31,                   December 31,
                       1998        1997         1998        1997 

Net sales              $51,493      $57,776     $206,838 $216,728
   
Gross Profit           23,598        27,925     95,060    106,048
   
Research and           6,825          7,209     27,374     24,470
development expense
   
Selling, general       10,548        12,747     41,951     41,591
and admin. expense   

Other, net             (395)             24     (798)        (107)
   
Merger and             0                  0     7,500       2,250
reorganization 
expenses   
  
Purchased in           0                  0      0          4,200
process technology 
   
Operating income       6,620          7,945      19,033    33,644
   
Interest expense, net  140               86      88             7
   
Income before income   6,480          7,859      18,145    33,637
taxes  
  
Income taxes           1,945          1,683      5,444      7,610
   
Net income             $4,535        $6,176      $12,701(1)$26,027(2)
 
Diluted net income     $0.30           $0.41     $0.85    $1.75
per common share  
  
Pro forma diluted      $0.27           $0.33(3)  $1.08(3) $1.66(3)
net income per share 
excluding one time charges 

Diluted weighted average 15,125       14,981     14,887  14,908
shares outstanding  

(1) Net income for the twelve months ended December 31, 1998 includes non-recurring merger and reorganization expenses of approximately $7.5 million principally relating to the merger with Digital Instruments ($0.32 per share).

(2) Net income for the twelve months ended December 31, 1997 includes non-recurring merger expenses of approximately $2.25 million ($0.09 per share) relating to the merger with Wyko Corporation and a non-recurring in-process R&D charge of approximately $4.2 million ($0.17 per share) relating to the acquisition of certain assets from Materials Research Corporation.

(3) Pro forma diluted net income per share excluding non-recurring charges (where applicable) is computed using a fully taxed statutory rate and excludes the effects of the applicable non-recurring charges for both 1997 and 1998.

Veeco Instruments Inc.
Consolidated Condensed Balance Sheets
(In thousands)

 
 
                             December 31, 1998          December 31, 1997
 
ASSETS
 
Current assets:
               Cash and cash     $23,492                 $20,444
               equivalents
               Accounts and      43,518                   44,927
               notes receivable
               Inventories       54,047                   44,825
               Other current     7,298                     6,297
               assests
Total current assets             128,355                 116,493
     
  
Property, plant                  37,138                   33,344
& equipment, net  
     
Excess of cost over              4,187                     4,318
net assets acquired
  
Other assets                     4,366                     5,476

Total assets                     $174,046               $159,631
     
  
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities              $42,815                 $47,715
     
Long-term liabilities            18,007                   18,158   
  
Shareholders' equity             113,224                  93,758
     
Total liabilities and            $174,046               $159,631
shareholders' equity     

Investor and Financial Media Contact:
Debra Wasser
(516) 349-8300 ext. 1472 

Trade Media Contact:
Fran Brennen
(516) 349-8300 ext. 1222